breaking news

UPDATE: PBSO IDs victim, murder suspect in West Palm-area shooting

Car insurance ads: Are we paying to entertain ourselves?

Insurance companies are pushing it real good — right to the top of the 10 biggest U.S. industries when it comes to growth in advertising spending.

Geico’s “Push It” ad from Salt-n-Pepa, for example, aired at a Super Bowl this year where commercials cost an average of $4.5 million for 30 seconds. That’s a record-breaking $150,000 per second.

Here is the part maybe you did not catch: Geico and Allstate say they may need to raise rates to keep up with expenses.

It highlights what some see as the irony of a multibillion-dollar arms race costing more than the gross domestic product of 46 nations — all to tell drivers how much they can save.

“It drives rates up since every penny of the ads is built into the rates,” said Bob Hunter, director of insurance for the Consumer Federation of America. “Also, lobbying expenses and other such anti-consumer expenses are in the rates in all states except California.”

One Esurance ad even gently mocks its own industry: “If you had a dollar for every dollar car insurers say they’ll save you by switching, you’d have, like, a ton of dollars.”

Hold on a minute, industry officials say.

Advertising promotes competition and helps consumers learn about choices. Ad spending represents a “tiny slice” of the financial picture compared to accident claims and other factors that matter most for rates, said Robert Hartwig, president of the industry-funded Insurance Information Institute.

“Bob Hunter’s model is that insurance should be offered by a single federal insurer prohibited from spending anything on advertising,” Hartwig said.

Still, there’s something extraordinary about the mighty flow of entertaining commercials from Flo at Progressive, Mayhem dude from Allstate, Geico’s talking gecko and more.

Insurance leads the nation’s top 10 industries in spending growth for advertising, and it’s not even close. While big automakers, retailers, food and candy manufacturers and many others are cutting back, insurance leads the pack with 7.8 percent annual growth last year to nearly $6 billion, Kantar Media calculates.

OK, but consumers win when companies compete, and advertising helps them compete, right? Yes, but there’s a little more going on with insurance than idle curiosity about how much a GM or McDonald’s plows into commercials designed to help them corral customers in a free market.

The government requires drivers to buy car insurance if they want to drive. That is a big reason why rates are regulated.

“Well, people have to eat, too,” Hartwig said. “Grocery stores and restaurants advertise.”

True. But the insurance ad boom raises a question: Can the industry keep up a spending race to deliver the message of greater savings for consumers without eventually eating into the savings?

There may be limits. In May, Allstate Corp. joined Geico to signal a need to collect more money from customers after profitability declined.

“We didn’t make as much money in auto insurance this quarter, in part because of weather, in part because we have to adjust prices, reflecting economic activity,” said Allstate Chief Executive Officer Tom Wilson, as reported by Bloomberg.

“We experienced increases in claims frequencies and severities in several of our major coverages,” a Geico filing cited by Bloomberg said. “As a result, we are implementing premium rate increases as needed.”

Spokesmen for both companies did not respond to or declined requests for comment for this story. General rate signals don’t offer specifics for, say, Florida drivers. Regulators in each state review rate requests to determine what consumers pay.

Advertising by health insurers in the age of the Affordable Care Act appears to be contributing to the industry’s overall spending boost, and life and home insurance plays a steady role, analysts say. But a look at individual car insurance companies suggests they remain a big driver of increased spending.

Geico spent about $1.2 billion on advertising in 2013, representing more than $6 out of every $100 it collected in premiums, according to SNL Financial. Financial reporting changes at parent Berkshire Hathaway make Geico’s spending tougher to calculate now, SNL says.

But it seems clear ad spending by its rivals was up again in 2014. Allstate spent 5.7 percent more to cruise past $900 million, State Farm was up 5.1 percent, past $800 million, and Progressive raised ad spending 8.6 percent to rocket past $600 million, SNL found.

To keep up, competing property and casualty insurers matched or exceeded some of those growth numbers. Farmers Insurance Group boosted ad spending 8.27 percent to $330 million and USAA jumped 13.96 percent to $133 million, SNL tallied in a report Friday.

The robust spending comes as more companies try to woo customers directly, relying less on big agent networks acting as middlemen.

Allstate, for example, acquired Esurance to compete with companies that target consumers directly, like Geico and Progressive. Often in their crosshairs are younger drivers comfortable with going to websites or calling phone numbers to buy insurance, rather than looking for an agent on the corner.

The direct model can free up money that might have gone to agent commissions and put it instead into consumer savings or advertising, noted SNL insurance research manager Terry Leone. In turn, that forces competitors to react with advertising of their own, to promote a competing direct model or to emphasize the value of agents or to denigrate “cut-rate” rivals.

But in all this, money for advertising does not come from thin air, Hunter said. After all, the primary source of income for insurers remains the premiums customers pay.

That means ad spending can’t grow indefinitely without having some impact on the consumer, he argues.

Just don’t give yourself a headache trying to follow the math too closely in this world. Watching commercials, it’s easy to get the impression you can save $500 every time you switch companies, Hunter said.

“If it were true, I would shop my $1,000 rate twice and get the insurance for free,” he said.

Reader Comments ...

Next Up in Nation & World

Steel rods to blame for flat tires to 30 cars on Florida highway
Steel rods to blame for flat tires to 30 cars on Florida highway

A truck and trailer dropped steel rods onto Interstate 95 in South Florida early Monday, causing flat tires to 30 vehicles, the Florida Highway Patrol said. Crews have removed debris from the roadway and troopers are looking on the shoulders of the highway to make sure all of the rods have been collected, said Lt. Alvaro A. Feola, a FHP spokesman....
Victim knocked unconscious after offering to pay for man’s beer, police say
Victim knocked unconscious after offering to pay for man’s beer, police say

A man was punched unconscious after he offered to pay for the beer of a customer who was ahead of him in line at a gas station convenience store, police said.  Sacramento County Sheriff’s Department recently released surveillance images that show the suspect and another man walking into the Valero gas station at 1:55 a.m. March 24 to...
Shania Twain apologizes for saying she would have voted for Donald Trump
Shania Twain apologizes for saying she would have voted for Donald Trump

Shania Twain has apologized for comments she said were in response to a question that caught her off guard. The country-pop singer was quoted in an interview with The Guardian published Sunday in which she said she would have voted for President Donald Trump. >> Read more trending news  “I would have voted for him because, even though...
HURRICANE HARVEY: Bait shop owner’s insurance payout thwarted by a typo
HURRICANE HARVEY: Bait shop owner’s insurance payout thwarted by a typo

Mary Ann Heiman opened her bait shop on the the causeway that crosses Redfish Bay to Port Aransas in 2011. From the outside, 1950 Hwy 361 was nothing fancy. “The building was just an old metal building that had sat here since the 1980s,” she said. “It was basically held together with nails and glue and love and duct tape.” The...
Memphis boy found after not coming home from school
Memphis boy found after not coming home from school

Update 9:33 a.m. EDT April 23: The child has been found, Fox13Memphis reported. Original: Police in Memphis, Tennessee, need your help finding a 9-year-old boy.  A City Watch was issued for Dewayne Alexander on Saturday night. Police told WHBQ that Alexander was walking home from school Friday in the 3300...
More Stories